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Wednesday, December 12, 2007

Fishing for Bedard: how much is too much?

The Reds are in a remarkable position right now in that they currently have 4 prospects who are considered by many to be ~Grade A prospects: Jay Bruce, Joey Votto, Homer Bailey, and Johnny Cueto. They also have another player in Josh Hamilton who, while entering his age-27 year, is similar to these players in that he has a high ceiling, some significant risk, and still has many more years until free agency. Given that several of these players keep popping up in trade discussions, especially with respect to Erik Bedard (right), it's worth it to try to quantify how much the Reds should get in return for their prospects should they decide to trade them.

In the recently-published August '07 edition of the SABR newsletter, there's a good study by Victor Wang investigating the value of prospects. He makes the important point that as free agent salaries increase, the relative value of a prospect also increases, because the performance of those prospects costs so much less than that of a free agent or near-free agent. I thought I'd summarize his findings and then try to apply it to the Bedard situation.

Breakdown of his methods

You can probably skim this part unless you get hung up below.

Wang estimated the total value of the prospect as the player's actual production plus the monetary savings that the team gets by using the cheap young player instead of a free agent for that production.

Player Production Estimate:

He looked at hitters and pitchers separately, and followed those ranked as 1-10 prospects, and those ranked as 11-25 prospects by Baseball America from 1990-1999. Therefore, this study only investigate the value of elite prospects.

He then quantified their contributions by WARP (Wins Above Replacement Player from Baseball Prospects). The use of WARP creates some problems for translation to actual wins, as WARP uses a much lower baseline than any other replacement stat I know of. But as long as we stick to WARP numbers when applying the findings of this study, we'll be fine.

Monetary Savings:

The idea here is that the performance that players contribute during their first six years costs the teams less than the same performance by free agents. So if you have two teams with identical payrolls, but one is composed exclusively of free agents, and the other is composed of 50% league-minimum players and 50% free agents, the latter team will perform better because the performance of those young players is much more inexpensive.

To estimate financial value, Wang essentially took the difference between player salary during their first six years in baseball and the free agent cost for that level of performance.

He then converted that dollar figure into a WARP figure using average free agent $/WARP values ($1.69 million per 1 WARP). This is essentially the additional production that you can buy on the free agent market if you use a young player instead of an equivalent free agent player, and yet keep the payroll the same. So, if a young player makes an average of $1 million a year over six years, but produces at the same level as a $4 million/yr free agent, then you essentially can spend an additional $3 million/yr on another player if you employ the young player.

Total Value

By summing the WARP value of the six-year production + 6-year monetary savings (converted to WARP by average WARP per $), you get the total average value of a prospect type. This is the total value that you should demand in a trade for such a prospect, extended over the number of years you can expect to control the acquired player(s).

Wang's findings:

Hitters

Top-10 prospects averaged 24 WARP in their first six years, or ~4 WARP/yr. This performance came at a savings of $5 million/yr relative to how much you'd spend on an equivalent free agent, which was the equivalent of ~3 WARP/yr of free production.

The total trade value of a top-10 hitting prospect therefore came to 24 + 3*6 yrs = ~42 WARP.

11-25 prospects averaged 19.3 WARP in the first six years, or ~3.2 WARP/yr. This performance came at a savings of ~$4.1 million/yr relative to a free agent, which was the equivalent of ~2.4 WARP/yr of free production.

The total trade value of an 11-25 hitting prospect therefore came to 19 + 2.4*6 yrs = ~34 WARP.

Pitchers

Top-10 prospects averaged 12.9 WARP in their first six years, or ~2.2 WARP/yr. This performance came at a savings of $2.7 million/yr relative to how much you'd spend on an equivalent free agent, which was the equivalent of ~1.6 WARP/yr of free production.

The total trade value of a top-10 hitting prospect therefore came to 19 + 1.6*6 yrs = ~22 WARP.

11-25 prospects averaged 11.1 WARP in the first six years, or ~1.9 WARP/yr. This performance came at a savings of ~$2.3 million/yr relative to a free agent, which was the equivalent of ~1.4 WARP/yr of free production.

The total trade value of an 11-25 hitting prospect therefore came to 11 + 1.4*6 yrs = ~19 WARP.

Clearly, pitchers were less valuable than hitters, which was largely due to pitchers' high "bust" rates. Wang found that an alarming 54% of top-10 pitching prospects turned out to be "busts" (meaning that they contribute less than 2 WARP/yr over their first six years) compared to just 21% of top-10 hitting prospects. But I think what is more impressive is how valuable even the average 11-25 pitching prospects tended to be, despite their risk (61% bust rate). 19 WARP over six years is the equivalent of a $32/6 million contract, using Wang's $1.69/WARP conversion. Top hitting prospects, on the other hand, are valued the equivalent of a 6 yr/$71 million free agent. That's the average, not just the ones who pan out!!

Application to the hypothetical Bedard trade

So, what does this mean for the Bedard trade we keep hearing about? Well, Bedard's a phenomenal pitcher, with a WARP value over the past two years of 7.1 and 8.0. This means that he netted the Orioles ~8 wins above a hypothetical replacement-level pitcher last year, which is the difference between them going 69-93 (0.426) and going 61-101 (0.377)--an enormous difference (again, WARP probably overestimates this value, but my guess is not by more than a win or two). Bedard has two years remaining on his contract, and has stated that he very much intends to test the free agent market, which means that any team acquiring him can really only count on controlling him for two more years. This is a key point that seems to be missing from a lot of the discussions I've seen regarding Bedard.

Now, in terms of future value, I think Bedard's likely to regress slightly from his outstanding performance rates in '07, but counteracting that, he missed some time when the Orioles very cautiously shut him down early last season, reducing his total value to the team. So it seems reasonable to predict that he will produce between 7 and 9 WARP each of the next two seasons, for a total performance value of 14-18 WARP. Obviously, he could perform well below that if he gets injured or something (and he does have some history with injuries), but 14-18 WARP over two years seems like a reasonable optimistic performance forecast.

Also, he's not yet making free agent money, as he's just now entering his 5th year. So given that, we probably need to give him some bonus value to match up . Tom Tango estimates that players make 40%, 60%, and 80% of free agent value in their 4th, 5th, and 6th years in MLB (their arbitration-eligible years). So, as a very rough approximation, let's add 40% and 20% to Bedard's value over the next two years to his extra monetary value, which puts his approximate "trade value" at 18-23 WARP.

Ok, let's now compare his value to some of the Reds prospects:

Jay Bruce - a 1-10 prospect as a hitter, total value of 42 WARP. Note, he's really a top-2 or top-3 hitting prospect, which probably should have a higher value, but we'll run with this for now.

Joey Votto - a 11-25 prospect as a hitter, total value of 34 WARP.

Homer Bailey and Johnny Cueto - I'm going to be slightly conservative and peg them as 11-25 prospects as pitchers, which gives them a total value of 19 WARP. But either could probably be a top-10 prospect depending on who you ask, which would bump up their value to 22 WARP.

Josh Hamilton - As a quick'n'dirty estimate, I'm going to rank him as equivalent to Votto, but only over 5 years instead of six, so 28 WARP. My feeling is that this is conservative, but probably not by more than 5 wins or so given the uncertainty surrounding his health.

So, if Bedard's value is 18-23 WARP over two years, he would make a reasonable one-for-one trade for Bailey or Cueto, with perhaps an additional lower-tier prospect or two thrown in. You might also be able to justify a one-for-one trade for Hamilton or Votto if you give Bedard's value an additional bonus because his performance will happen sooner rather than later. But that's assuming that the Reds are going all-in over the next two years, and I don't think the club is at the point that they should be doing that, as much of their best talent is still young.

Nevertheless, what this analysis indicates to me is that a package of any two of the Reds' prospects would be severely overpaying for two years of Bedard. Now, Bedard's trade value could be greatly improved if you could extend Bedard beyond the 2010 season. But the potential for such an extension seems questionable given Bedard's comments about wanting to test free agency. Furthermore, pitchers don't tend to make particularly good investments in the long term because of how unreliable even great pitchers tend to be past age 30.

Given that a one-for-one trade of any of the Reds' prospects for Bedard is apparently very unlikely, I have to say that I'm really hoping the Reds do not end up making this deal. So good luck to the Dodgers, Mariners, and anyone else who might want to step in and try to outbid Krivsky.